Ancillary services in banking refer to additional offerings beyond core financial products, aimed at enhancing the overall customer experience and financial inclusion. This includes card services, safe deposit lockers facility, foreign exchange transactions, and other Para-Banking activities.
Para-Banking Activities
Banks are permitted to undertake certain eligible financial services or para-banking activities either departmentally or through subsidiaries. Examples include:
- Retailing of government securities
- Investment in venture capital funds
- Insurance broking and corporate agency
- Mutual fund business
- Pension fund management
- Portfolio management
- Equipment leasing, hire-purchase, and factoring
- Underwriting of bonds issued by public sector undertakings (PSUs)
Small Savings Schemes of the Government
All public sector banks and the top three private sector banks are authorized to accept deposits under various government-backed small savings schemes. These include:
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- Kisan Vikas Patra (KVP)
- Sukanya Samriddhi Yojana
- Senior Citizens Savings Scheme
Income Tax Payment Services
Customers of all public sector banks, including the State Bank of India (SBI), can file income tax returns online. This facility is also offered by several private sector banks such as Axis Bank, ICICI Bank, Karur Vysya Bank, Kotak Mahindra Bank, HDFC Bank, and Jammu and Kashmir Bank.
Retailing of Government Securities
Banks may retail government securities to non-bank clients on an outright basis at prevailing market rates. However, they are prohibited from engaging in ready-forward transactions in government securities with non-bank clients. The State Bank of India’s subsidiary, Discount and Finance House of India (SBI DFHI), serves as a primary dealer in government securities.
Venture Capital Funds (VCFs)
Banks often collaborate with financial entities to offer venture capital funding to businesses. Notable government-monitored venture capital funds include:
- IFCI Venture Capital Funds Ltd. (IVCF)
- SIDBI Venture Capital Ltd. (SVCL)
- Gujarat Venture Finance Ltd. (GVFL)
- Kerala Venture Capital Fund Pvt. Ltd.
Public sector bank-promoted firms such as Canbank Venture Capital Fund and SBI Capital Markets Ltd. are also active in this space.
Mutual Fund Services
Banks may act as agents for mutual funds, facilitating the purchase and sale of units by forwarding investor applications. However, banks must not:
- Guarantee returns on mutual fund investments
- Acquire mutual fund units from the secondary market
- Buy back units from customers
Any credit facilities extended against mutual fund units must comply with RBI guidelines governing advances against shares, debentures, and mutual fund units.
Money Market Mutual Funds (MMMFs) and Chequebook Facility
Banks wishing to establish MMMFs must obtain approval from the RBI before approaching SEBI for registration. These funds allow investors to maintain sub-accounts with cheque-writing privileges, subject to specific conditions set by the MMMF provider.
Insurance Broking and Corporate Agency
Under bancassurance arrangements, insurance companies distribute products through banking channels. Banks may act as corporate agents on a fee-based, non-risk participation model without prior approval from the RBI. However, all activities must comply with IRDA regulations.
Pension Fund Management
As per the Government of India notification F.No.13/6/2005-BOA dated May 24, 2007, banks may undertake pension fund management through dedicated subsidiaries, subject to RBI approval and compliance with eligibility criteria prescribed by the Pension Fund Regulatory and Development Authority (PFRDA). Such activities cannot be undertaken departmentally.
Participation in Stock Exchanges
Indian banks, including their overseas branches, are permitted to transact in Interest Rate Futures (IRFs) on SEBI-approved stock exchanges. These transactions must be for hedging risks in their investment portfolios and trading positions. Banks are not permitted to transact in IRFs on behalf of clients and must adhere to RBI-prescribed limits on non-option derivative contracts.
Infrastructure Debt Fund Sponsorship
Banks and Non-Banking Financial Companies (NBFCs) may sponsor Infrastructure Debt Funds (IDFs), which can be structured either as:
- Trusts (regulated by SEBI as mutual funds), or
- Companies (regulated by RBI as NBFCs)
These funds refinance existing infrastructure debt, freeing up bank resources for new infrastructure projects. IDF-NBFCs may assume loans from completed Public-Private Partnership (PPP) projects, facilitated through a tripartite agreement between the IDF, the concessionaire, and the project authority.
Equipment Leasing, Hire Purchase, and Factoring
Banks may undertake equipment leasing, hire purchase, and factoring services departmentally without prior RBI approval. However, they are required to report such activities to the RBI, including details of the branches involved, and must adhere to prudential norms while conducting these services.
Payment Cards: Credit, Debit, and Prepaid Cards
Banks issue a range of payment cards:
- Credit Cards: Offer revolving credit lines
- Debit Cards: Directly linked to the user’s bank account
- Prepaid Cards: Loaded with a pre-specified amount, independent of a bank account
National Common Mobility Cards (NCMC)
Issued by banks authorized by the National Payments Corporation of India (NPCI), NCMC is a multi-purpose transport card valid across India for metro, bus, and train travel. It also supports offline transactions such as parking, toll payments, and retail purchases.
Foreign Exchange Transactions
Foreign exchange services, though not part of core banking, are considered ancillary due to their supportive role in international financial transactions. These include currency exchange, risk management, and advisory services, contributing to the holistic financial services offered by banks.
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